Oct. 23, 2023
Dear Securities and Exchange Commission, I am compelled to submit this public comment in response to the proposed rule "Safeguarding Advisory Client Assets," which, in its current form, leaves much to be desired. While the intentions of enhancing investor protections and addressing gaps in the custody rule are commendable, the lack of clarity, potential legal challenges, and adverse economic impact of the proposal raise serious concerns. Firstly, the proposal fails to provide a clear and comprehensive definition of digital assets, leading to widespread confusion and potential misinterpretation. In an industry as dynamic as the digital asset market, it is imperative that regulators establish a precise framework that accurately captures the unique characteristics of these assets. Without sufficient clarity, the interpretation and application of the rule will vary, creating compliance challenges and hindering technological innovation and growth. Furthermore, the proposed rule seems to overlook any potential legal inconsistencies or conflicts with existing laws, regulations, or constitutional provisions. It is crucial for any rule to undergo a thorough legal review to ensure its validity and alignment with established legal principles. Neglecting to address any ambiguity or conflicts will only undermine the rule's credibility and effectiveness in protecting investor interests. The economic impact of the proposed rule also raises significant concerns. The potential increase in compliance costs, decreased efficiency, and reduced market liquidity could have adverse effects on businesses, investors, and the overall economy. It is essential to consider the nuanced implications of such regulations for various stakeholders and strike a balance between investor protections and the natural dynamics of the market. A thorough and data-driven analysis of the potential negative economic effects must be conducted before implementing measures that could hamper growth and development. Additionally, the practical implementation of the proposed rule raises doubts due to ambiguous language, unclear requirements, or overly complex compliance measures. Rather than presenting practical approaches and simpler alternatives, the proposal seems to burden investment advisers with unnecessarily convoluted and difficult-to-achieve expectations. Such burdensome and confusing requirements may discourage investment advisers from effectively complying with the rule, defeating its intended goals. Moreover, failing to adequately assess the unintended consequences of the proposed rule risks hindering market development, discouraging innovation, reducing transparency, and potentially creating new risks. It is vital to conduct a comprehensive evaluation of the potential unintended negative effects or any adverse impacts on the public interest. Striking the right balance between investor protection and market efficiency is crucial in ensuring the rule's overall benefit to the public. Furthermore, close attention must be given to potential conflicts with international standards or agreements. Failing to align the proposed rule with global best practices may result in regulatory inconsistencies and unintended consequences for market participants involved in cross-border transactions. Taking a holistic approach and incorporating international perspectives will greatly benefit the rulemaking process and the overall effectiveness of the rule. To ensure a well-rounded and balanced discussion, it is absolutely necessary to highlight stakeholder opposition to the proposed rule. Various industry associations, advocacy groups, and lawmakers who oppose the rule should be encouraged to provide their perspectives and articulate their concerns as part of the comment process. Ignoring opposing views would undermine the fairness and transparency that should be a cornerstone of rulemaking. Lastly, I urge you to grant an extension of the comment period to allow adequate time for stakeholders to thoroughly analyze the proposed rule and provide comprehensive responses. A complex regulation of this nature demands thorough consideration and robust engagement to foster meaningful feedback and effective rulemaking. An extended comment period would demonstrate a genuine commitment to engaging with the public and fostering collaboration to achieve the best possible outcome. Thank you for considering my comments on the "Safeguarding Advisory Client Assets" proposal. I sincerely hope that my concerns, suggestions, and frustrations are given the consideration they deserve in the rulemaking process. It is essential that we strike a balance between investor protection and fostering innovation and economic growth. Sincerely, Nikolai